What to watch this week

After snapping a nine-week streak to start 2024, stocks returned to their winning ways last week.

All three major indexes advanced during the first full trading week of the year, led by a 3% gain for the Nasdaq Composite (^IXIC), while the S&P 500 (^GSPC) ended the week less than 13 points, or about 0.3%, away from its level. standard. At the close of the week, Microsoft (MSFT) also overtook Apple (AAPL) as the world's most valuable company.

Next week, investors will look to keep momentum going into the holiday-shortened week.

With US markets closed on Monday for Martin Luther King Jr. Day, Wednesday's financial sector results and retail sales data should serve as the main catalysts for the calendar.

Retail sales are expected to rise 0.4% in December, up from 0.3% in November, as US consumers continue to fuel a surprisingly durable economic expansion.

Michael Jaben, an economist at Bank of America, wrote that the company expects the government to apply seasonal adjustments to December data that will lead to “strong” retail sales numbers.

“Looking back, we think spending is healthy but not rising,” Jabin added. Currently, the company expects Q4 GDP to track toward an annual growth rate of 1.2%.

Elsewhere on the economic calendar, Thursday's initial jobless claims data and a look at consumer sentiment from the University of Michigan on Friday will warrant a closer look from investors.

Beyond earnings and the economic calendar, Monday's Iowa caucuses will mark the official start of the 2024 US presidential election. On the geopolitical front, rising tensions in the Red Sea – with the US and its allies carrying out air strikes on consecutive days in Yemen last week – are gaining attention. With increasing interest from investors.

Adel, Iowa - JANUARY 11: A banner supporting Republican presidential candidate former President Donald Trump is displayed on January 11, 2024 in Adel, Iowa.  Iowa voters prepare for the Iowa Republican Party presidential caucuses on January 15.  (Photo by Kevin Deitch/Getty Images)

A banner supporting Republican presidential candidate former President Donald Trump is displayed on January 11, 2024 in Adel, Iowa. Iowa voters prepare for the Iowa Republican Party presidential caucuses on January 15. (Photo by Kevin Deitch/Getty Images) (Kevin Deitch via Getty Images)

Next week's key earnings reports are expected on Tuesday morning, with investment banks Goldman Sachs (GS) and Morgan Stanley (MS) scheduled to report results after a challenging year for their dealmaking businesses showing in their results.

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“I think it's the investment banking story,” Ken Lyon, director of research at CFRA, told Yahoo Finance Live on Friday [next week] “It would be once again that we hit the bottoms of the cycle last year.”

On Friday, major money center banks, including JPMorgan (JPM), Wells Fargo (WFC), Bank of America (BAC), and Citi (C) announced fourth-quarter and annual results, with record annual profits of about 50%. $1 billion for JP Morgan and Citi plans. The elimination of 20,000 jobs and another $2.5 billion in costs served as highlights.

The start of earnings season on Friday also saw results from Delta Air Lines (DAL), which disappointed investors and sent the airline's shares down nearly 9% and dragged peers United Airlines (UAL) and American Airlines (AAL) lower.

Mixed signals on inflation

Inflation data last week showed that consumer prices were stronger than expected in December, while producer prices fell more than expected.

In a note to clients on Friday, Nancy Vanden Houten, chief US economist at Oxford Economics, cited disruptions linked to the Red Sea as representing an “upside risk” to the company’s inflation outlook.

With investors focused on how each additional piece of inflation data could change the Federal Reserve's plans to cut interest rates this year, last week's data provided a marginal increase in conviction that that process will begin in March.

Shown are data from the CME ensemble Investors expect a 77% chance that the Fed will cut interest rates by 0.25% in March, up from the 65% chance that emerged last week after the strong December jobs report.

“We have adjusted our baseline assumptions to assume that at every other meeting the FOMC will initiate additional cuts starting in March, two earlier than the previous,” Barclays economists led by Jonathan Millar wrote on Friday.

He added: “This primarily reflects our downward revisions to core PCE inflation, which significantly enhances the likelihood that the FOMC will continue to see relatively weak monthly prints from this measure through February. However, we view the March outcome as a closer call.” Much more than that.” Markets price probability of approximately 80%.”

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Barclays also sees interest rates advancing at a “more gradual” pace than markets are pricing in – Millar and his team see interest rates falling by 1% by the end of 2024, with markets anticipating rate cuts of around 1.5%. The current federal funds rate ranges between 5.25% and 5.50%.

Earnings topics to watch

The financial sector took the spotlight to kick off earnings season.

But the big story for markets in 2023 has focused on technology stocks and, in particular, the leading blue chips of the “Magnificent Seven” that have pushed the Nasdaq to gains north of 40%.

Later this month, results from these names and other tech companies will start rolling in.

How this sector performs will be of particular interest to investors as technology sector (XLK) valuations have risen in anticipation of an AI-driven profit cycle.

At the end of 2023, data from Bank of America showed the technology sector's forward P/E ratio was 27, the second highest among all S&P 500 sectors — only real estate (XLRE), which saw valuations rise as sector profits declined. sharply, and traded at a higher valuation (39). The S&P 500 as a whole traded at 19.8 times next year's expected earnings.

Since technology represents more than 28% of the S&P 500's market capitalization, these results will have a significant impact on the overall direction of the index.

In a note published on Friday, FactSet's John Butters highlighted negative guidance given by S&P 500 companies for fourth-quarter results that were slightly above the recent five- and 10-year averages, with 111 members of the index warning the Street about the upcoming results. When looking at these warnings by sector, technology stands out.

FactSet data shows that 25 members of the technology sector warned that earnings would miss expectations in the fourth quarter, more than the 10-year average of 19 members of the sector that issued a similar warning. Overall, there are 64 members of the S&P 500 in this sector.

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Now, when it comes to the seven great names in particular, sector-level nuances become a challenge — Meta (META) and Alphabet (GOOG, GOOGL) platforms are components of the communications services sector (XLC), while Amazon (AMZN) and Tesla (TSLA) is rated as a consumer discretionary stock (XLY).

But all of these stocks are components of the Nasdaq Index, the market's indicator of investor sentiment.

With “technology trading” assuming a monolithic role in the minds of many investors last year, the party won't really get underway in Q4 earnings season until reports from these names start rolling in.

Weekly calendar

Monday

Economic data: Markets are closed for Martin Luther King Jr. Day

Earnings: Markets are closed for Martin Luther King Jr. Day

Tuesday

Economic data: New York Fed Imperial Manufacturing, January (-4 expected, -14.5 previously)

Earnings: Goldman Sachs (GS), Morgan Stanley (MS), PNC Financial (PNC), Interactive Brokers (IBKR)

Wednesday

Economic data: Retail Sales, December (+0.4% expected, +0.3% previously); Retail sales, excluding auto and gas, December (+0.3% expected, +0.6% previously); MBA Mortgage Applications, Week of January 12 (previously +9.9%); Import Price Index, December (-0.6% expected, -0.4% previously); Export Price Index, December (-0.7% expected, -0.9% previously); Industrial Production, December (0% expected, +0.2% previously); Business Inventories, November (-0.1% expected, -0.1% previously); Federal Reserve Beige Book

Earnings: Charles Schwab (SCHW), Alcoa (AA), Discover (DFS), US Bancorp (USB), Kinder Morgan (KMI), Citizens Financial (CFG), Prologis (PLD)

Thursday

Economic data: Initial jobless claims, week of January 13 (205,000 expected, 202,000 previously); December housing starts (-8.7% expected, +14.8% previously); Building Permits, December (+0.9% expected, -2.5% previously); Philadelphia Fed Business Forecast, January (previously -7, previously -12.8)

Earnings: PPG (PPG), Fastenal (FAST), OZK Bank (OZK), KeyCorp (KEY), JB Hunt (JBHT), M&T Bank (MTB), Northern Trust (NTRS)

Friday

Economic data: University of Michigan Consumer Confidence, preliminary January reading (69.3 expected, previous 69.7); University of Michigan One-Year Inflation Forecast, January (previously 3.1%); Existing Home Sales, December (+0.3% expected, +0.8% previously)

Earnings: Travelers (TRV), State Street (STT), Regions Financial (RF), Ally (ALLY), Comerica (CMA), Fifth Third (FITB), Huntington Bancshares (HBAN)

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